Bad
debt expense percentage equals bad debt expense for the year divided
by credit sales for that year.

Bad
debt expense is the net addition to the allowance for bad debts
during your business year. If you do not maintain an allowance account,
it would be the amount you write off during that year.

Credit
sales includes all sales except for returned merchandise and
cash sales.

Bad Debt Expense Percentage Calculator

Bad
Debt Expense

$

Credit
Sales

$

Bad
Debt Expense Percentage

Working
with your bad debt expense percentage

Most
businesses have some level of bad debt expense. No bad debt expense
probably means that you are too restrictive in accepting credit risk
while too many bad debts may mean you are extending too much credit
to unworthy credit risks. An increase in the bad debt expense percentage
is a negative sign, since it indicates that you are accepting more credit
risk and increasing the potential for future write-offs.

By
monitoring changes in your bad debt expense percentage over time, you
can better understand the financial dynamics of your business and run
it more effectively. Here is a worksheet
you can use to track changes in this and other important measures.